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Freddie Mac Sues Banks over Libor Rigging

Manipulation of rate may have cost Freddie and Fannie $3 billion, report says.

Freddie Mac sued Bank of America Corp., UBS AG, JPMorgan Chase & Co. and a dozen other banks over alleged manipulation of the London interbank offered rate, saying the mortgage financier suffered substantial losses as a result of the companies’ conduct.

Government-owned Freddie Mac accuses the banks of acting collectively to hold down the U.S. dollar Libor to “hide their institutions’ financial problems and boost their profits,” according to a complaint filed in federal court in Alexandria, Virginia.

“Defendants’ fraudulent and collusive conduct caused USD LIBOR to be published at rates that were false, dishonest, and artificially low,” Richard Leveridge, a lawyer for Freddie Mac, said in the complaint, which was made public yesterday.

Manipulation of interest rates by some of the world’s biggest banks has spawned probes by half a dozen agencies on three continents in what has become the industry’s largest and longest-running scandal. More than $300 trillion of loans, mortgages, financial products and contracts are linked to Libor.

Libor is calculated by a poll carried out daily by Thomson Reuters Corp. on behalf of the British Bankers’ Association, an industry lobby group that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies.

The complaint lists 15 banks as defendants as well as the British Bankers’ Association. They include Citigroup Inc., Barclays Plc, Royal Bank of Scotland Group Plc, the Royal Bank of Canada, Deutsche Bank AG and Credit Suisse Group AG.

Freddie Mac accuses the banks of fraud, violations of antitrust law and breach of contract. The housing financier is seeking unspecified damages for financial harm, as well as punitive damages and treble damages for violations of the Sherman Act.

“To the extent that defendants used false and dishonest USD LIBOR submissions to bolster their respective reputations, they artificially increased their ability to charge higher underwriting fees and obtain higher offering prices for financial products to the detriment of Freddie Mac and other consumers,” the U.S.-owned company said in the complaint.

Banks Named

Representatives of the banks who declined to comment on the lawsuit were Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup; Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan; Brandon Ashcraft, a Barclays spokesman; Bill Halldin, a Bank of America spokesman; Victoria Harmon, a spokeswoman for Credit Suisse; and Ed Canaday, a spokesman for Edinburgh-based Royal Bank of Scotland.

Calls to Bank of Tokyo-Mitsubishi UFJ Ltd. and Norinchukin Bank, both of Tokyo, which also were named in the complaint, weren’t answered on a public holiday.

“The BBA is aware of the lawsuit in the United States and is unable to comment,” Brian Mairs, a spokesman for British Bankers’ Association, said in an e-mail.

Brad German, a spokesman for McLean, Virginia-based Freddie Mac, said the company doesn’t comment on litigation. Denise Dunckel, a spokeswoman for the Federal Housing Finance Agency, the conservator of Freddie Mac, also declined to comment.

Freddie Mac and its sister company, Washington-based Fannie Mae, could have lost a combined $3 billion because of Libor manipulation, the auditor of the FHFA said in a Nov. 3 internal memo urging the regulator to investigate further.

Freddie Mac and Fannie Mae use Libor to determine interest payments on their investments in floating-rate financial instruments such as bonds and swaps.

The two companies, which package mortgages into securities on which they guarantee payments of principal and interest, have been under U.S. conservatorship since 2008.

Barclays, UBS and RBS have been fined more than $2.5 billion following a global probe into Libor manipulation. Traders rigged the benchmark to profit from bets on derivatives, while banks sought to submit artificially low rates to appear financially healthier than they were, according to regulators.

From August 2007 and through at least May 2010, the defendants “formed a combination, conspiracy, or agreement,” to submit false Libor rates, Freddie Mac alleged in the complaint.

The case is Federal Home Loan Mortgage Corp. v. Bank of America Corp., 13-cv-00342, U.S. District Court, Eastern District of Virginia (Alexandria).

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